Monday, April 28, 2008

Taxing 'Alcopops'

News over the weekend that the federal government has raised the excise on pre-mixed drinks ('alcopops') from $39 to $67 per litre of pure alcohol caught my eye, given my interest in using economic instruments for public policy.

These drinks are sweet and taste less alcoholic than they are and have therefore been a drink of choice for young people, women in particular, and the move is designed to help arrest the increase in dangerous drinking among teens and young adults.

On first thoughts, this seems to me like a sensible move:
  1. It closes a loophole where spirits were taxed at a substantially lower rate if they were mixed with soft drinks and put in a can or bottle. So just on a tax efficiency basis it seems justified.
  2. This is quite a targeted tax increase in that it focuses on drinks that I understand are largely consumed by young people who - given their lower incomes - are more likely to respond to a price hike.

The alcohol industry has claimed that young drinkers will just switch to beer or spirits. Some will, but I think that switch will be limited by two factors:

  1. Spirits are taxed at the higher rate too.
  2. Spirits and beer are not complete substitutes for pre-mixed drinks. From my experience, pre-mixed drinks tastse like soft drinks and are extremely easy to drink quickly. Spirits and beer just aren't the same.

I'll try and find some figures to assess my initial thoughts. What do you think of the move?

Other views:

Harry Clarke

Tim Dunlop

3 comments:

djfoobarmatt said...

I think this will have the desired effect of discouraging abuse of those drinks but the overall result will be a shift to something else. I don't think the problem can be fixed with economics alone but I'm sure it fits with a more comprehensive overall plan that involves tackling the motivations of the problem as well as the mechanics right?

Eilleen said...

I think by itself, it won't achieve anything (aside from increased revenue). However, as part of an overall strategy (one that encompasses community driven solutions, cultural change and education) then we might actually start seeing some real action to curb binge drinking.

Anonymous said...

The alco pops tax wont discourage teens from drinking it makes teens start to mix there own drinks. teens are going onto higher alcohol content drinks such as spirits beacuse they can not afford the alco pops now. the spirits are doing more harm to the teens beacuse they have more alcohol in them. So instead of helping the teenage drinking problem Kevin Rudd has actually made it worse!